Thursday, January 21, 2010

MisLeading Indicator Climbs

The December Conference Board Leading Economic Index™ numbers for December have been released. The index increased 1.1 percent in December, following a 1.0 percent gain in November, and a 0.3 percent rise in October.

Eight of the 10 components improved in December.

Gains in the leading index were propelled by the interest-rate spread, building permits, jobless claims and stock prices. Consumer expectations, vendor performance, the real money supply and capital goods orders also improved. The other two leading indicators - factory workweek and consumer goods orders - were steady in December.

There are many shaky components to this climb, including the biggies, the interest rate spread, the stock market and money supply. As I have pointed out, although the yield curve/interest-rate spread is generally one of my favorite indicators, it should not be considered an important bullish factor at this time. The stock market is set to implode, after one of the greatest dead cat bounces ever seen from a dead cat, and anyone who could possibly think that the money supply is showing any positive signs is partying harder and more often than Nouriel Roubini.

In other words, this leading indicator is like asking someone who doesn't speak English for directions in a foreign land where you don't understand the language. After much hand gesturing, you may not only not get a sense as to where to exactly go, but you may get pointed in the wrong direction.

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